from the the-mobile-wars dept

A few years ago, there was no reason to see Apple and Google as direct competitors — but thanks to the mobile space, all that has changed. Now the two tech giants are going head-to-head in a contest for the mobile device market share, but their approaches to this race remain very different. This week, we discuss the nuances of this competition and what these two different approaches can teach us about business models and innovation.

from the innovation-tax dept

Obviously, there have been an awful lot of patent lawsuits in the past few years concerning smartphones and various software and hardware associated with smartphones. The folks over at law firm WilmerHale have now released a paper, which conservatively (and thoroughly) estimates that the patent royalties that need to be paid by smartphone manufacturers currently exceeds $120 per device -- which they note is right around the price of the components themselves (found via FOSS Patents, which notes that the estimates in the paper almost certainly lowball the patent royalties, so they may be much higher). Basically, more than half the cost of making a smartphone these days is in paying off patent holders.

The authors of the paper are pretty clear that they don't even have data on many other parts of the smartphone where patent holders have demanded licensing payments, meaning the number is probably actually higher. Though, on the flipside, they admit that some companies likely negotiated lower rates in private than the "headline" rates that were publicly revealed. Either way, the $120 estimate is likely fairly conservative.

Talk about a massive tax on innovation -- that all of us are paying for.

And, of course, many of these fees are going to pure trolls, who have contributed nothing to making actual smartphones. The paper highlights the explosion of troll lawsuits in the past few years:

Though, to be fair, some of that is because of the America Invents Act of 2011, which made it more difficult for trolls to file a single lawsuit against multiple defendants, meaning that many started more lawsuits against individual defendants.

Either way, this should be seen as a massive problem. Rather than going towards innovation and better, more affordable products for the pubic, money is going to lawyers and patent trolls who have contributed nothing to society. It's a massive dead weight loss to the economy.

But here's the thing that I find most fascinating about this: it's a reminder of just how quickly and completely a "dominant" tech firm can almost disappear off the face of the earth. Go back to 2007 (also known as The Time Before The iPhone) and Nokia absolutely and totally dominated the mobile phone market. In fact, I remember making a joke around 2005 or so mocking another company for suggesting that it could pass Nokia in the market (I can't remember which company, but it may have been Samsung) and a telco analyst much wiser than myself scolded me, reminding me how quickly the market can change -- and he was totally correct. Two quick images tell the story. The first, put together by the Guardian using Gartner data, shows how Nokia (via Symbian) basically owned the smartphone market for quite some time. And then its lead disappeared:

Or, if you look at it from a profit share realm by vendor, as Asymco did last year, you get an even more dramatic story, where Nokia's ability to profit from mobile phones went away.

Even its overall lead in selling all kinds of phones (going beyond the smartphones and into cheaper phones around the globe, a market that it absolutely dominated) was lost a bit ago to Samsung. Just a few weeks ago, Mobile Unlocked put together an astounding interactive chart showing overall mobile phone sales quarter by quarter going way back. This static image below doesn't do it justice. Check out the full thing:

No matter how you slice the data, it's undeniable that Nokia absolutely and totally dominated the market. Plenty of people (as noted, myself included) thought that lead was more or less insurmountable. While many may argue otherwise today, at the time it was very, very difficult (unless you were that prescient analyst I talked to) to envision a world in which there was such a major market shift that would take Nokia off its game so totally. And then, along came the iPhone. And Android. And the world changed. And Nokia clearly wasn't ready for it, didn't recognize where the world was heading and was unable to respond in a timely fashion. It tried to shift much later in the game, but it was way, way, way too late.

In fact, it could be argued that its own success was part of the problem. Nokia was heavily invested in Symbian and had committed to following that path. This is actually something that's not uncommon with dominant players. In some ways, they're a victim of being there first. When a disruptive innovation comes along, they can't shift on a dime, and the innovations effectively leapfrog right over them. Yes, you can ride out cash cows for a long time -- and Nokia has done so (as, it appears, has Microsoft...) but eventually the music stops.

I bring this up because we seem to go through this quite often -- with people fretting about certain "dominant" tech firms, and how something has to be done to stop them or they'll have too much power. But, as we see time and time again, it often seems that "something" is done in the form of regular competition and innovation from others, who can come out of nowhere and completely take down a giant in a very, very short period of time.

from the share-your-stories dept

First I would like to thank readers of this site and others in the tech community for their support of our phone unlocking campaign. As you may know, that campaign culminated with 114,000 signatures on the White House petition website, an FCC and White House endorsement of unlocking and several bills introduced in Congress. Legislation is usually a slow process, but, here, Congress appears to be moving quickly on this issue -- potentially even putting this legislation up through suspension meaning that it wouldn't receive any debate or amendment but can be done much quicker.

On Thursday, Chairman Goodlatte's legislation will be before the House Judiciary IP Subcommittee. Unfortunately, while the wireless industry and others who have been against unlocking will be represented, there will be no witnesses at the hearing who have been part of our campaign for unlocking (however, Consumers Advocacy may be an advocate for the consumer on this issue). This is very disappointing news.

I met with some of the Members and their staff on this unlocking issue - and I was asked to submit formal written testimony to the committee. This testimony will be available to all Members during the hearing to consider while they also hear from their witnesses. I have been writing up a thorough presentation on the facts and why unlocking is important for the mobile market, liberty and consumer choice. Now I'm asking for your help and perspective. If you have a story on how unlocking affected you, I'd like to hear it. If you have information that should be relevant to the testimony, I want to include it.

In particular, Chairman Goodlatte's legislation would legalize unlocking, but only temporarily, allowing the Librarian of Congress to rule all over again. At the same time, it will keep this technology as illegal for businesses to develop or sell.

If you are an entrepreneur who would like to offer a service for consumers in this category I would love to hear your story. What is the actual impact of unlocking being illegal, and if it were legalized for consumers and businesses what new market models may flourish?

Does anyone have any information on the impact of this restriction upon the resale market? Has anyone been sued or prosecuted for this? I am particularly interested in stories from our service members who may have to unlock their phones abroad. Has anyone ever called their phone provider and asked to unlock after their contract expired and were told no? These are stories I want to include.

In the wake of my report on copyright reform, my last day on the Hill was January 6th. Since that time, I have dedicated the past five months to this campaign, which I believe is a critical post-SOPA battle. As I argued on Boing Boing, this is a test of our ability to move positive action for small, winnable battles. If we can win on this issue, we will be able to build on this coalition going forward. Here is another article on how to approach reforms to copyright law.

So again, I want to thank all of you, I hope to hear data and stories from you. And I want to give credit where credit is due. Many were involved in this campaign, including Public Knowledge and Sina Khanifar. Without Jennifer Grancik with Stanford Law there may never have been an unlocking exception to begin with. And without thorough coverage from Techdirt, this issue may never have risen to prominence.

from the not-the-way-to-encourage-innovation dept

We kind of knew this was going to happen all along. But as the FCC is figuring out how to distribute a bunch of useful spectrum, some in Congress are taking the short-sighted, anti-innovation approach of demanding that it be auctioned off for closed uses, rather than made unlicensed for wider benefit. This is a debate that should have ended ages ago. Open spectrum drives innovation -- unquestionably. Just look at the rise of WiFi and Bluetooth and what that's enabled over the past decade plus. The impact of those two technologies has greatly outweighed any benefit from licensed, locked up spectrum. But, of course, the telcos want that spectrum locked up and limited for use just by their own services (even as they increasingly piggyback on unlicensed spectrum to save money). And, in true corruption laundering fashion, they're able to put forth a "plausible" explanation for why the FCC should auction it off rather than open it up: money. That is, if the FCC auctions if off to telcos for closed use, the federal government can likely raise somewhere in the range of $19 billion (some reports suggest much higher: the CBO predicts nearly $25 billion, and others have suggested it could go even higher than that). That's a decent chunk of cash, obviously. So, Congress is now whining about how the FCC's plan to support unlicensed spectrum is some sort of ridiculous give away by the federal government:

Representative Greg Walden, an Oregon Republican, who is chairman of the panel, said the law that gave the F.C.C. the ability to conduct “incentive auctions” of newly available spectrum required “maximizing the proceeds from the auction.”

For the F.C.C. to obtain the highest price for the spectrum it sells, it should limit the size of guard bands, Mr. Walden said; he said the six-megahertz minimum size proposed by the F.C.C. was unnecessarily fat.

You see, apparently these members of Congress don't want the FCC to do what's best for the country or for innovation. It doesn't want the FCC to do what's best for long term growth (which, in turn will increase tax revenues over the long term). No, these members of Congress instead are only focused on the big upfront number of getting cash now from telcos, even if it means less innovation, less useful tools for the public and less tax revenues down the road. I guess it shouldn't be any surprise that telco companies are among the top five contributors to Walden's most recent campaign (coming right after... lobbyists). Whatever happened to that idea that elected officials should have to wear patches, a la Nascar, of who funds their campaigns?

from the need-pressure-from-somewhere dept

Amazon announced a ton of new ereader/tablet devices this morning, which is being covered to death on the various gadget blogs out there. While some of the devices look interesting (and could put some pricing pressure on other tablets), what caught my eye was the addition of a 4G LTE mobile data plan on the Kindle Fire HD. It's $49.99 for the year, though it's limited to just 250MB per month -- which is tiny. Amazon has included mobile data before in its Kindles, but those were strictly for books (which don't take up that much data). As they go further into the fully functional tablet world, this starts to become more interesting. That's because mobile data continues to be something of a racket, with just a few national providers: Verizon, AT&T, T-Mobile and Sprint (and there are limitations there). The pricing offered by those guys always seems to border on collusion (amazing how closely they track each other's pricing changes) and is always focused on keeping the prices very high.

Amazon's offer here is a way to tiptoe into that pool with something of an alternative. Yes, they're just piggybacking on someone else's network via some sort of MVNO (mobile virtual network operator) agreement, so you're still really using one of the national carriers' networks. But from a consumer standpoint, it is offering something of an alternative for mobile data, at much more reasonable prices (though, obviously, the super low caps match that super low pricing). That, alone, doesn't revolutionize mobile data pricing, but it does seem like a way for Amazon to get its foot in the door and expand over time. Amazon has a long history of figuring out ways to do things in a consumer-friendly manner, even if it means undercutting others to do so (which has made it a few enemies). In the presentation itself, Jeff Bezos noted that they're focused on making money elsewhere -- basically as people buy things via the device -- and thus the company has tremendous incentive to keep the prices of the devices and the service quite low. And that has the potential to be quite disruptive.

In some ways, I look at it as similar (in a very different context) to Google's fiber effort in Kansas City. In both cases, you have companies sort of dipping their toes in the water of ancillary markets that make their primary markets more valuable. They're very limited at this time, and many people may brush them off as being useless. But that's what always happens with The Innovator's Dilemma. Offer something simple and small, and the legacy players brush it off as too small or too limited to matter. But keep improving on that, and you undercut legacy providers without them fully realizing what's happening -- often because you're using your tiny and "weak" efforts there to actually enhance your primary market, where the traditional players have no presence.

Lots of people are reasonably mocking the 250MB limit. It is kinda useless. But, look at it as a wedge, and the beginning of the climb up the innovation slope, making Amazon's core business more valuable... and things could actually get quite interesting.

from the important-question dept

With the Apple/Samsung case finishing up, James Allworth, over at HBR, has an excellent post wondering why it matters if one company copies from another? A few years ago, we wrote about a book that pointed out that copying and then innovating on the copies is a perfectly reasonable and important business strategy. Allworth points to a new book (one I've been looking forward to for a while) by Chris Sprigman and Kal Raustiala (who we've quoted numerous times) called The Knockoff Economy: How Imitation Sparks Innovation.

He then takes the lessons of that book and applies it to the Apple/Samsung fight, noting that even if we assume they were imitating each other, that seems to have only encouraged further innovation, not less:

If you go back to the mid-1990s, there was their famous "look and feel" lawsuit against Microsoft. Apple's case there was eerily similar to the one they're running today: "we innovated in creating the graphical user interface; Microsoft copied us; if our competitors simply copy us, it's impossible for us to keep innovating." Apple ended up losing the case.

But it's what happened next that's really fascinating.

Apple didn't stop innovating at all. Instead: they came out with the iMac. Then OS X ("Redmond, start your photocopiers"). Then the iPod. Then the iPhone. And now, most recently, the iPad. Given the underlying reason that Apple has been bringing these cases to court was to enable them to continue to innovate, it's hard not to ask: if copying stops innovation, why didn't Apple stop innovating last time they were copied? Being copied didn't stop or slow their ability to innovate at all. If anything, it only seemed to accelerate it. Apple wasn't able to rest on its laurels; to return to profitability, and to take the mantle they hold today of one of the technology industry's largest companies, they had to innovate as fast as they could.

It's the same story we've been explaining for years. History and tons of studies have shown over and over and over again that competition drives innovation, because innovation is an ongoing process. Thus, when others can copy you, that actually accelerates innovation by giving the original incentives to stay ahead in the marketplace, and develop the next great thing. Research has also shown that it's not as easy as you think to "just copy" because you only see the superficial aspects to copy, rather than having the deeper understanding of what works and what doesn't that a market leader often gains.

In fact, when you understand that, you realize that patents can actually slow down innovation by letting a company rest on its laurels, and not have to continue to rapidly innovate. Other companies can't build on what they did first, and so they don't have the same incentives to continue to advance the market forward. And the Apple/Samsung fight in the market appears to support that.

If Apple ends up winning this case against Samsung — and either stops Samsung from releasing their phones and tablets to the market, or charges them a hefty license fee to do so — does anyone really believe that the market will suddenly become more innovative, or that devices will suddenly become more affordable? Similarly, if Samsung wins, do you really believe that Apple will suddenly slow its aggressive development of the iPhone and iPad? It's certainly not what happened last time they lost one of these cases.

Now, if you're with me so far, then I don't think it's a leap to suggest that having these companies duke it out in court over "who might have copied who" is counterproductive. All these lawsuits flying around suggest that everyone is already copying each other, anyway. A better solution? Let's have these companies solely focused on duking it out in the marketplace — where consumers, not courtrooms, make the decisions about innovation. In such a world, the best defense against copying isn't lawsuits, but rather, to innovate at such a rate that your competition can't copy you fast enough. That, to me, sounds like an ideal situation not just for consumers — but for the real innovators, too.

from the data-everywhere dept

This post is part of an Intel-sponsored series of posts we'll be doing here at Techdirt on the topic of innovation. Posts in the series consist of a video interview of myself (which you'll see below), the post, and another video interview with an Intel representative and others. That second video, obviously, is content from Intel, but my video and what I've written here was done with complete and total editorial independence. We hope you enjoy the content and take part in the overall discussion, either via the comments or through the interactive ad unit to the right of the post.

When most people think about wireless technologies today, they think about the fact that it makes it easier for them to connect their computers without having to plug in. Or that it lets data flow to their smartphones. But the overall impact can be seen as being much more profound. First up, here's a short video of me talking about the impact of wireless technologies:

I think it has become easy for many of us to take for granted the power of wireless connectivity. It's almost difficult to remember what life was like before we had data at our fingertips anywhere, at any time on any device. And, yet, it wasn't that long ago that this wasn't true at all. WiFi has only been around for about a dozen years. Mobile cellular data (at any reasonable bandwidth) is much more recent. And, yet it's become so embedded in our lives. The idea that you can get directions anywhere, pull up information about any shop or restaurant, or even access any content at all is so powerful, yet almost feels mundane already.

But think about just how powerful it is in areas that were barely connected at all in the past. We've read stories about communities in developing nations where small players, who only used to have access to the nearest market, can suddenly reach out to others, and actually allow for competition for their products. That can be a massive change, in that it gets rid of a monopsony situation, allowing the poor in developing countries to get out of a never-ending cycle of poverty.

Similarly, wireless technology alone is enabling new careers and new types of businesses. There are the famous stories of women (and it's almost always women) in certain rural villages, who have built careers out of carrying around mobile phones that can be brought to different farmers, and used on a time-share-like system. This allows those farmers to have access to data and connectivity, but also has provided a way for those women to build up a career for themselves.

And think, then, about what begins to happen as the vast richness of data and information, that we now take for granted, reaches further and further into the far corners of the globe. The ability to do more, to build more and to connect more is going to reshape the lives of the many billions of underprivileged people of the world in ways that we can't even begin to fathom. The world just reached an astounding 7 billion people -- most of whom don't have access to many of the things we in the west take for granted -- including information. Wireless technologies have a chance to change that equation, and what comes out of it may be completely unexpected, but tremendously powerful. The idea that people who in the past may never have had an impact on the world may now be able to reach out and share their ideas and innovations with everyone is a revolution that is destined to bring powerful new ideas to the entire world.

Below you can see a video Intel put together, discussing how powerful wireless technologies can be.

from the doesn't-computer dept

There's plenty of talk making the rounds about Steve Jobs' comments about Android in the authorized biography that's coming out next week. In it, Jobs apparently makes it clear that he was absolutely furious about Android "ripping off" the iPhone. According to the summary in the Huffington Post:

Walter Isaacson's authorized biography of Steve Jobs offers an unprecedented look at the Apple co-founder's battle-cry against Google, a company he thought was guilty of a "grand theft" when it launched its Android operating system, which competes directly with the iPhone and has surpassed it in popularity.

"I'm willing to go thermonuclear war on this," he told Isaacson of the patent lawsuit Apple filed against cell phone manufacturer HTC.

In Isaacson's "Steve Jobs," a copy of which was obtained by The Huffington Post, the author recalls that Jobs, who was known for his fierce temper, "became angrier than I had ever seen him" during a conversation about Apple's patent lawsuit, which by extension also accused Android of patent infringement.

"Our lawsuit is saying, 'Google you f***ing ripped off the iPhone, wholesale ripped us off,'" Jobs said, according to Isaacson. "I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong. I'm going to destroy Android, because it's a stolen product."

This is coming from Steve Jobs, who was inspired by the graphical user interface he saw at Xerox PARC and turned that into the Macintosh. Now, as we've noted before, what Jobs was always great at doing wasn't just taking an idea and copying it, but making it better. But, many would argue that's the same thing that Google has done with Android. Yes, they clearly took inspiration from the iPhone, but there are some key differences, which many people enjoy. In fact, Steve Jobs pretty much admitted this very fact earlier this year when some of the iPhone's upgrades appeared to be copied directly from Android.

And that's kind of the point: part of the way innovation works is that you build on the works of others. That doesn't just mean wholesale copying, but trying to take what works and improve on it -- or take what doesn't work well and figure out a way to make it work better. Steve Jobs did this many, many times, but so have Google and many other companies. It seems rather hypocritical to get all bent out of shape because others are doing the same thing.

Apple didn’t invent the iPod, they stole the idea and made the music industry their own. The way we buy and listen to music is now shaped almost entirely by Apple’s vision.

Apple didn’t invent the smartphone, they stole the idea and reshaped the industry in their own vision. Yes, Apple has “copied” bits and pieces of iOS from other sources —notifications is the obvious example — but overall, the future of the mobile industry has been shaped by Apple.

Apple didn’t invent the tablet computer, they stole the idea and now iOS is the template for the tablet market.

So I'm at a loss as to Jobs' complaint against Android. At best, the only logical way to view his complaint is that he was upset that Google didn't do enough on top of the idea of the iPhone to make Android completely its own. But I think that's more of a difference in philosophy. Steve Jobs came from a very top down world view, in which the brilliant designers (him, Jonathan Ive, etc.) designed everything perfectly. Google's world view seems to be more about setting up the system, and then letting others design the improvements. That's messier, clunkier, and a hell of a lot uglier at first. But in the long run, I think it tends to lead to much greater innovation. Just not the kind of innovation you unveil as "and one more thing..."

In the end, the best way to sum all this up comes from the T.S. Eliot quote that Ford puts at the end of his blog post. Many people have heard the paraphrased version (often copied and attributed to others) that "good artists copy, great artists steal." But the full T.S. Eliot quote is much more interesting and nuanced:

One of the surest tests [of the superiority or inferiority of a poet] is the way in which a poet borrows. Immature poets imitate; mature poets steal; bad poets deface what they take, and good poets make it into something better, or at least something different. The good poet welds his theft into a whole of feeling which is unique, utterly different than that from which it is torn; the bad poet throws it into something which has no cohesion. A good poet will usually borrow from authors remote in time, or alien in language, or diverse in interest.

from the innovation! dept

A whole bunch of you have been submitting this story about how mobile app developers around the globe have begun pulling their apps from the US Apple iOS and Android Market stores because they're afraid of getting hit by patent lawsuits in the US. This shouldn't surprise anyone. Plenty of folks in the tech industry have been warning for well over a decade about the problems with our patent system and how it's basically being used to extract money from innovators, rather than to encourage innovation. The article quotes a bunch of developers, some of whom say that they're "concerned about my future as a software developer due to these patent issues."

At what point will people finally admit that the system is broken? Totally and completely broken?

And yet, what did Congress do? It took them five or six years, but they passed a totally toothless bit of patent reform that won't address a single one of the problems we all know are facing the system. But how can people deny that the patent system is a problem when it's clearly keeping innovation out of the US market?